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Express mail industry delivers speedy results
March 31, 2011, Thursday
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INSPIRED by the swift rise of local success Shentong, express mail delivery companies are big business in the area but, as Winny Wang learns, the industry might have developed a bit too hastily for some.
Hangzhou's Tonglu County cradles China's biggest private express delivery companies which reap half of the country's express delivery revenue.
Lower-priced services and franchise businesses resulted in their fast expansion, but growing complaints and stricter government stipulation urged the companies to change their business models to compete with state-run peers and overseas rivals.
Tonglu native Nie Tengfei set up China's first private express delivery company, the predecessor of Shentong Express, in 1993 when he was 20 years old.
At first, Nie and his partner Zhan Jisheng delivered declaration sheets for trade companies from Hangzhou to Shanghai. They spent only one day to send the sheets to their destination by bicycles and trains, while it took at least three days by the state-run China Post's Express Mail Service.
The fast service helped Shentong grab a lion's share in the Hangzhou express delivery market, and Nie began recruiting his friends to be franchisees of Shentong.
Now Shentong has become China's biggest private express delivery company with more than 4,000 outlets and 50 distribution centers. Its revenue in 2010 exceeded 10 billion yuan (US$1.52 billion).
The success of Shentong encouraged many other people in Tonglu to get engaged in the express mail industry at that time. When Nie died in 1997 in a traffic accident, some of his friends left Shentong to set up their own mail companies, some of which have also grown to become domestic giants in today's express delivery market.
Shentong, Yuantong, Yunda, Zhongtong and Huitong - all set up by Tonglu natives - have reaped annual revenue of nearly 30 billion yuan in total, accounting for half of China's express mail market.
The lower-priced services and franchise businesses played a big role in the success of these companies, but weaknesses were exposed during their fast expansion.
It was easy for express mail firms to increase market shares by recruiting franchisees, as well as easy for them to lose control of the franchisees, which led to mass criticism of their services.
A survey conducted by the Hangzhou government said that many franchisees worked under two express delivery brands, which lowered customers' loyalty to their services. Some franchisees even opened customers' packages or delayed the delivery of goods, which damaged the reputation of these brands.
In January, complaints to express delivery services grew 222.2 percent to 2,452 cases, half of which were because of express delays, according to the State Post Bureau.
Zhongtong, Huitong and Shentong received more complaints than their domestic peers, the bureau said.
The State Post Bureau tightened supervision over the express delivery industry recently by issuing franchising contract samples and banning business of 17 unqualified express mail companies. It is also mapping out guidelines for the industry.
"Consumers are more and more highly demanding and the government's supervision is becoming stricter, so express companies need to change their business mode or they will face big risks," said Xu Yong, chief consultant from China Express Consulting.
Some of the companies have tried to enhance control of outlets by conducting stock restructure on one-third of franchisees and restructuring another one-third into agents to improve services.
Shentong tried to take over seven outlets that have strong profitability by transferring stakes with its franchisees. It has also invested 200 million yuan in setting up a sorting center in its headquarters, buying 18 vehicles and expanding a transit hub in Changzhou, Jiangsu Province.
Yuantong will invest 350 million yuan in mega operation centers in major cities such as Shanghai, Guangzhou and Hangzhou, as well as launching services in the Middle East and Southeast Asia.
Meanwhile, Zhongtong invested 120 million yuan in constructing a new headquarters in Shanghai's Qingpu District and Yunda invested 150 million yuan in setting up new transit hubs.
Some of them are also in talks with private equity and capital venture firms about absorbing investments to support their expansion.
Hangzhou's Tonglu County cradles China's biggest private express delivery companies which reap half of the country's express delivery revenue.
Lower-priced services and franchise businesses resulted in their fast expansion, but growing complaints and stricter government stipulation urged the companies to change their business models to compete with state-run peers and overseas rivals.
Tonglu native Nie Tengfei set up China's first private express delivery company, the predecessor of Shentong Express, in 1993 when he was 20 years old.
At first, Nie and his partner Zhan Jisheng delivered declaration sheets for trade companies from Hangzhou to Shanghai. They spent only one day to send the sheets to their destination by bicycles and trains, while it took at least three days by the state-run China Post's Express Mail Service.
The fast service helped Shentong grab a lion's share in the Hangzhou express delivery market, and Nie began recruiting his friends to be franchisees of Shentong.
Now Shentong has become China's biggest private express delivery company with more than 4,000 outlets and 50 distribution centers. Its revenue in 2010 exceeded 10 billion yuan (US$1.52 billion).
The success of Shentong encouraged many other people in Tonglu to get engaged in the express mail industry at that time. When Nie died in 1997 in a traffic accident, some of his friends left Shentong to set up their own mail companies, some of which have also grown to become domestic giants in today's express delivery market.
Shentong, Yuantong, Yunda, Zhongtong and Huitong - all set up by Tonglu natives - have reaped annual revenue of nearly 30 billion yuan in total, accounting for half of China's express mail market.
The lower-priced services and franchise businesses played a big role in the success of these companies, but weaknesses were exposed during their fast expansion.
It was easy for express mail firms to increase market shares by recruiting franchisees, as well as easy for them to lose control of the franchisees, which led to mass criticism of their services.
A survey conducted by the Hangzhou government said that many franchisees worked under two express delivery brands, which lowered customers' loyalty to their services. Some franchisees even opened customers' packages or delayed the delivery of goods, which damaged the reputation of these brands.
In January, complaints to express delivery services grew 222.2 percent to 2,452 cases, half of which were because of express delays, according to the State Post Bureau.
Zhongtong, Huitong and Shentong received more complaints than their domestic peers, the bureau said.
The State Post Bureau tightened supervision over the express delivery industry recently by issuing franchising contract samples and banning business of 17 unqualified express mail companies. It is also mapping out guidelines for the industry.
"Consumers are more and more highly demanding and the government's supervision is becoming stricter, so express companies need to change their business mode or they will face big risks," said Xu Yong, chief consultant from China Express Consulting.
Some of the companies have tried to enhance control of outlets by conducting stock restructure on one-third of franchisees and restructuring another one-third into agents to improve services.
Shentong tried to take over seven outlets that have strong profitability by transferring stakes with its franchisees. It has also invested 200 million yuan in setting up a sorting center in its headquarters, buying 18 vehicles and expanding a transit hub in Changzhou, Jiangsu Province.
Yuantong will invest 350 million yuan in mega operation centers in major cities such as Shanghai, Guangzhou and Hangzhou, as well as launching services in the Middle East and Southeast Asia.
Meanwhile, Zhongtong invested 120 million yuan in constructing a new headquarters in Shanghai's Qingpu District and Yunda invested 150 million yuan in setting up new transit hubs.
Some of them are also in talks with private equity and capital venture firms about absorbing investments to support their expansion.
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